Four New Mexico tribes reached back to a Senate discussion on the passage of the 2010 Dodd-Frank Act in making their case for why Kalshi should not be allowed to operate on tribal lands. The exchange, as well as a claim that the Indian Gaming Regulatory Act (IGRA) allows for Indian Country to embrace “modern technology,” are key arguments in a federal lawsuit filed Monday in the U.S. District Court for the District of New Mexico.
The case is the third brought by Indian Country against Kalshi, which is also fighting against states for the right to continue to offer its sports event contracts, which mimic traditional sports betting. U.S. states and tribes say the federally regulated platform violates sovereignty and the products should be state or tribally licensed and subject to appropriate gambling regulation.
Brought by the Mescalero Apache Tribe, the Pueblo of Isleta, the Pueblo of Pojoaque, and the Pueblo of Sandia, all of which already offer retail sports betting, the complaint was filed on the same day that a Wisconsin federal judge ruled the Ho-Chunk Nation could move forward with the IGRA portion of its claim against Kalshi. The New Mexico tribes lean heavily into their rights under IGRA in their complaint, as well as pointing specifically to an exchange from 2010 that appears to support the claim that Congress never intended for Commodity Futures Trading Commission (CFTC)-licensed entities to offer sports betting.
Part of the discussion in every lawsuit involving prediction markets is that the Commodity Exchange Act (CEA) and the enforcement agency, the CFTC, bar contracts involving terrorism, assassination, war, gaming, or other activities that go against the public interest. The CFTC addresses this in its Special Rule, 40.11. Dating to early 2025, Kalshi has been offering contracts on sports events (gaming), and more recently it — and Polymarket, which just this week became available across the U.S. — offered contracts related to the assassination of Iranian leader Ayatollah Ali Khamenei and other controversial issues.
Senators saw little value in sports contracts
The Dodd-Frank Act was conceived as additional protection following the 2007-08 financial crisis. At that time, sports event contracts were discussed. The complaint highlights this exchange between Democratic Sens. Dianne Feinstein of California and Blanche Lincoln of Arkansas, who was the chair of the Senate Agriculture Committee.
With that, Congress intended to prevent use of the CEA to enable gambling:
Mrs. FEINSTEIN. It is very important to restore CFTC’s authority to prevent trading that is contrary to the public interest. … I am glad the Senator is restoring this authority to the CFTC. I hope it was the Senator’s intent, as the author of this provision, to define “public interest” broadly so that the CFTC may consider the extent to which a proposed derivative contract would be used predominantly by speculators or participants not having a commercial or hedging interest. Will CFTC have the power to determine that a contract is a gaming contract if the predominant use of the contract is speculative as opposed to a hedging or economic use?
Mrs. LINCOLN. That is our intent. The Commission needs the power to, and should, prevent
derivatives contracts that are contrary to the public interest because they exist predominantly to enable gambling through supposed “event contracts.” It would be quite easy to construct an “event contract” around sporting events such as the Super Bowl, the Kentucky Derby, and Masters Golf Tournament. These types of contracts would not serve any real commercial purpose. Rather, they would be used solely for gambling.
What Lincoln predicted is what Kalshi has done, despite the law and regulations in place. Every Kalshi-related lawsuit addresses this issue, as well as what, exactly, a sports event contract is, but there has been no clear resolution. The contracts are currently defined as financial tools, though the question of what a “swap” is has been hotly contested in court.
Tribes and states have argued that sports events contracts are de facto sports betting — and that Kalshi itself argued, “Contracts that involve games are probably not the type of contracts that we want to be listed on an exchange, because they don’t have any real economic value to them. But again, what’s tying that together is the existence of the game, because the game is the thing that doesn’t have intrinsic economic significance.” Mot. Hrg. Trans., CFTC, Dkt. No. 40 at 15 (Sept. 12, 2024).
The New Mexico tribes argue: “Kalshi therefore understood, as of September 2024, that the CEA does not allow contracts based on the outcome of sporting events to be traded on DCMs.”
CEA doesn’t include words ‘Indian,’ ‘tribe’
The New Mexico tribes also outline how the CEA and CFTC have evolved but have traditionally been focused on “physical” commodities such as grain, eggs, butter, or soybean futures, though non-physical commodities, such as U.S. government debt futures, were later added. In their discussion of the CEA, the tribes make the argument that it does not supersede IGRA, and, in fact, the CEA “does not abrogate, repeal, or limit IGRA or tribal gaming authority or ordinances, since it does not reference them or even use the words ‘Indian’ or ‘tribe.'” Tribal attorneys go on to say that the CEA barely references “gaming,” and only does so in its Special Rule and in reference to “state and local” exceptions.
In the complaint, the tribes lean heavily into IGRA, writing that the 1988 law not only allows Indian Country sovereignty, but the right to keep anyone off their land, as upheld in multiple court cases.
“Among other inherent sovereign powers, Indian tribes ‘possess their traditional and undisputed power to exclude persons whom they deem to be undesirable from tribal lands.’ Duro v. Reina, 495 U.S. 676, 696 (1990),” reads the complaint. “That includes the ‘well established’ power to exclude non-members entirely or to condition their presence on the reservation[.]” New Mexico v. Mescalero Apache Tribe, 462 U.S. 324, 333 (1983).”
The tribes also touch on what licensing a commercial gaming entity on tribal land would look like — IGRA requires that operators pay the tribes 60% of revenue — as well as writing that IGRA allows for tribes to embrace and use “changing technology.”
“Congress did not intend to freeze gaming on Indian lands ‘trapped in a … time warp, forever limited to those forms’ of gaming commonly used when IGRA was enacted. See Wisconsin Cent. Ltd v. United States, 585 U.S. 274, 284 (2018),” the attorneys wrote.
Just put up a geofence
New Mexico tribes do not currently offer online sports betting, and their complaint is mostly limited to Kalshi operating on tribal land. But the reference to changing technology could imply a tribal interest in online sports betting. The four tribes are all compacted with the state via model compacts that do contemplate the legalization of online gambling.
In the complaint, tribal attorneys wrote that Kalshi could easily stay off Indian land by using a geofence. The company has argued in other cases that the cost of geofencing is prohibitive, but the New Mexico tribes wrote that when mobile lottery vendor Jackpocket was live in New Mexico, it geofenced out tribal land. The state attorney general has since classified mobile lottery as online gaming, and Jackpocket has geofenced out the state. In addition, state-regulated online sports betting and prediction operators like DraftKings and FanDuel, which offer prediction markets in New Mexico, have previously told InGame that they geofence out tribal lands.
Saying Kalshi has built its business by “evading gaming regulations,” the tribes wrote that the company is violating tribes’ ordinances, compacts, and IGRA — including allowing wagering at age 18 instead of a minimum age of 21, failing to provide the tribes with required employee background checks, and failing to have appropriate integrity and responsible gambling processes in place. They ask the court to permanently ban Kalshi from operating on their land and to award civil penalties and attorneys fees by May 31.
